In the United States, credit unions are not-for-profit organizations that exist to serve their members rather than to maximize corporate profits. Like banks, credit unions accept deposits and make loans. But as member-owned institutions, credit unions focus on providing a safe place to save and borrow at reasonable rates. Unlike banks, credit unions return surplus income to their members in the form of dividends. Consider these differences between credit unions and banks:
- Credit unions are comprised of members who share resources in order to gain the lowest possible loan rates, and the highest possible savings returns.
- Credit unions are democratically operated by members, allowing account holders an equal say in how the credit union is operated, regardless of how much they have invested in the credit union.
- Credit unions are managed by volunteer Boards of Directors who are members and serve to assist the financial health of the entire membership. The credit union membership votes in elections for the Board of Directors.
- Credit unions, by federal law, must retain a high percentage of capital to protect members’ savings, weather tough economic times and fund the ability to grow and better serve members.
- Fees and loan rates at credit unions are generally lower, while interest rates returned are generally higher, than at banks and other for-profit institutions.
- Credit unions, as not-for-profit organizations, serve the financial well-being of the member through free consumer education and counseling.
- Credit unions are not-for-profit, and therefore do not pay corporate income taxes. Credit unions do pay state and other national taxes.
- Each credit union decides who it will serve. In order to join a credit union, potential members must be part of a field of membership, which is typically based on one’s employment, community, or membership in an association or organization. Credit unions serve members of modest means. Membership in Southwest Federal Credit Union is open to anyone.
- Banks are managed by boards of shareholders who expect to profit from the customers who use their products and services.
- Bank customers have no input into the management of their financial institution.
- Banks seek profit and will exploit any customer’s financial health in order to raise money for shareholders.
- Banks seek customers who will pay the interest rates they offer on loans, and accept the returns they provide on savings. Shareholders profit from these customers.
- Banks can issue stock to raise capital and must retain a low percentage for savings. Banks can grow any way they choose and expand into any market they choose.
- Banks can serve any customer in any state, and their growth is not restricted by state or national government.
- Banks operate for a profit, and therefore do pay corporate income taxes and all other state and national taxes.